U.S. LNG profit seen elusive as price gap closes

Long-term buyers of U.S. LNG who invest in shipping and liquefaction infrastructure may be able to make significant savings, according to Jonathan Whitehead, global head of commodities markets at Societe Generale SA in London.

“It’s completely different economics for spot versus long- term contracts,” he said. “A spot-shipping rate of $3 to Japan from the U.S. Gulf coast is probably true, but over 20 years it’s probably $1 and a bit. Liquefaction might be $2.”

Korea Gas, the world’s biggest LNG-buying company, agreed last January to buy LNG from Sabine Pass based on Henry Hub prices. The contract may help the utility pay 30 percent less than supplies in Asia, which are traditionally indexed to oil, the state-owned company said in April. Exports to Asia would cost $9.35 per million Btu, based on a Henry Hub price of $3, Cheniere said last year.

The introduction of contracts linked to Henry Hub instead of crude will help speed a move away from oil indexation, according to the Oxford Institute’s Henderson.

“Even if the volumes of North American gas that actually arrive in Asia and Europe are relatively small, their impact on prices and price formation across the globe could be significant and long-lasting,” he said.